DID BERNANKE HAND THE ELECTION TO OBAMA?

So far, the polls indicate that the election will be very close. Although Mr. Obama appears to be leading, his lead is well within the margin for error. Anything can turn the election one way or the other.

Everyone except his most ardent supporters acknowledges that his achilles heal is the economy. There is no need to rehash the details. They are well known. The general perception is that even though he was handed a bad economy, his policies have not improved matters. Indeed, they have made matters worse, and things show no signs of improving anytime soon.

History has demonstrated that one of the few ways in which a sitting president can be defeated is by being held responsible for a bad economy (e.g. Herbert Hoover, Jimmy Carter). But, in this case, Ben Bernanke may have ridden to the rescue, intentionally or not. His recent announcement that the Fed will inject substantial funds into the marketplace and maintain short term rates at or near zero percent has given a short term, artificial boost to the stock market. Of course, it could also trigger inflation in the long run, but that would occur after the election.

In the meantime, a rising Dow gives people optimism that the economy will improve since the Dow is known to be a leading economic indicator. Furthermore, according to USA Today in 90% of the elections held since 1900 the incumbent has won when the Dow has risen in the two months preceding the election.

Why would an astute person like Mr. Bernanke expect QE3 to help the economy when QE1 and QE2 did not, or was there an ulterior political motive? Nobody knows for sure. Will his action swing the election to Mr. Obama? Time will tell.